Amazon trialing new delivery system that makes FedEx and UPS obsolete

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While FedEx and UPS are expected to retain some functions of their partnership with Amazon, such as final delivery, the digital retailer will "decide how a package is sent instead of leaving it up to the seller", Bloomberg reported.

Under Seller Flex, the popular online retailer will pickup packages from third-party merchants' warehouses and then deliver the products straight to customers' homes, cutting out FedEx and UPS services, the two sources said.

Amazon didn't specifically deny the report but issued a statement to GeekWire in response to questions about the reported plans, saying "We are using the same carrier partners to offer this program that we've used for years, including UPS, USPS and FedEx".

The new experiment is meant to make more products available for free-two day shipping and relieve overcrowding in its warehouses, Bloomberg reported.

The service first began in India, and Amazon began to slowly push it into US consumers. Some third-party merchants also store their goods with Amazon.

Amazon has invested heavily in its logistics network over the years and taken on losses to build it out.

FedEx shares were up 0.9% at $220.27.

The hit to delivery service companies' stocks on fears that Amazon will disrupt the industry might have some staying power, CNBC's Jim Cramer said Thursday. Amazon would not comment about the project. The first is they can entice even more Prime sign-ups by offering free two-day delivery on a greater range of third-party sales. And they will still need FedEx and UPS to deliver for them. It did not indicate how the deliveries would be handled and by what type of service.

In FedEx's latest annual report, the company said the residential e-commerce market is the fastest-growing, but the revenue is "much smaller" than its business-to-business revenue. It involves Amazon picking up products from third-party sellers and shipping them to customers, rather than having third-party sellers handle the entire shipping process themselves. The internet e-commerce giant is up 29 percent year to date through Wednesday versus UPS' 4 percent and FedEx's 19 percent returns.

But the popularity of this service strains Amazon's capacity during the end-of-year holidays.

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